No, More Immigration Won’t Fix the Federal Budget

A new study claims migrants prevented a fiscal crisis. The math doesn’t add up.

Courtesy Miko Guziuk/Unsplash.

Earlier this month, the Cato Institute published a study claiming that immigration has dramatically improved America’s fiscal situation over the past three decades, preventing a budget crisis. According to the analysis, the national debt would be twice as large today had it not been for the fiscal benefits of immigration. In 2023 alone, the authors estimate, immigrants—both legal and illegal—reduced the budget deficit by $878 billion.

Taken seriously, Cato’s analysis provides a strong justification for the Biden administration’s lax border policies. A de facto open border would not only be economically beneficial, but it would also cure America’s debt problem.

The analysis, however, does not hold up. Its conclusion rests on accounting assumptions that inflate immigrant tax payments, underestimate costs, and attribute fiscal effects to immigrants in ways that systematically favor immigrants. It’s true that immigration produces real economic benefits, but it is not an economic panacea. Treating it as such obscures the real policy tradeoffs at hand.

Cato’s methodology—presented as an update to the model previously developed by the National Academies of Sciences, Engineering, and Medicine—produces results that diverge dramatically from earlier research.

As one example, the authors report that in 2013 “the average immigrant had a positive net fiscal effect of $10,349.” Yet, according to the Census’s Current Population Survey, the average immigrant worker that year earned $39,160, and average income across all immigrants (including nonworkers and children, as Cato does) was under $25,000. A group earning $25,000 annually cannot plausibly reduce the national deficit by $10,000 per person. That would imply tax payments approaching 40 percent of income, even after accounting for government transfers.

In reality, according to the Census data, the average immigrant paid roughly $5,400 in federal income and payroll taxes after credits in 2013 while receiving $3,500 in direct federal benefits—a net fiscal contribution of just $1,900 at the federal level.¹ At the state and local level, immigrants tend to have negative fiscal effects, due to the high cost of public schooling. Thus, it is implausible that the average immigrant would generate over $10,000 in annual net savings at all levels of government, as Cato estimates.

The study’s results also diverge sharply from existing empirical research. There is a rich literature that estimates the fiscal impact of immigrants in the United States and none—even the most pro-immigrant analyses—reach conclusions of a magnitude similar to Cato’s.

For example, in an earlier study, the National Academies found that the average immigrant—like the average native-born American—received more in direct benefits than he paid in taxes between 1994 and 2012. The National Academies study found the average lifetime fiscal impact of immigrants to be roughly -$23,000 in 2012 dollars, or -$32,400 in today’s dollars. These estimates, like Cato’s, do not account for the cost of providing public goods—like spending on national defense or roads—and the proportional rise of discretionary spending with population growth.²

None of this is to suggest that immigration harms the U.S. economy. Immigration expands labor supply and, thus, total output. But the overall economic and fiscal effects are nuanced. It should not be implied, using wildly inflated estimates, that any and all immigrants are a cure for America’s fiscal problems.

My own analysis finds that the average new immigrant (not past) is, indeed, helping reduce the national debt. On a lifetime net-present-value basis, I estimated in 2024 that the average immigrant reduces the national debt by roughly $10,000 in net present value over his or her entire life (not per year). In a subsequent 2025 analysis, I estimated that the average new legal immigrant reduces the national debt by $350,000 over 30 years, while the average new illegal immigrant will increase it by $80,000.

These figures suggest immigration can, under some circumstances, produce fiscal benefits, but those benefits are measured in tens of thousands of dollars—not the trillions implied by the Cato estimates. Moreover, they suggest that whom we admit matters for fiscal impact—illegal immigration costs money, while legal immigration adds to the public fisc.

How, then, does Cato find such implausible large positive effects? The discrepancy stems from how the study assigns costs and revenues. For example, the researchers assign the cost of every service received by native-born children of immigrants to the children rather than to the immigrant parents. This removes large expenditures—especially the cost of education—from the fiscal cost of immigration, even though those children would not cost the state anything if their parents had not immigrated. The study even assigns the entire child tax credit to the child, even though it is the parents who receive the credit.

On the revenue side, the study assigns 30 percent of corporate tax revenues to immigrant workers—more than prior analyses—while simultaneously assuming income, payroll, and sales taxes are exclusively borne by workers. But if corporate taxes are partially borne by immigrant workers, then other taxes should only be partially borne by native employers as well. The methodology therefore maximizes the revenues attributed to immigrants while minimizing the attributed costs.

At the state and local level, the study further assumes immigration increased property values by roughly 10 percent over the 1994-2023 period. In other words, immigrants are credited for the property-tax revenue generated through higher home values of natives, but are not charged for the education spending funded by those very taxes.

My own analysis indicates that age is an important determinant of immigrants’ fiscal effects. Immigrants arriving before age 40 tend to be net fiscal contributors at the federal level for many years, while immigrants arriving after 40 tend to increase federal debt because they contribute for fewer working years before collecting benefits.

Source: Author’s analysis of direct federal tax and benefits, CPS 2025, using a discount rate equal to the 30 year treasury nominal rate and latest CBO baseline.

By limiting their analysis to the years 1994 to 2023—the period of fastest growth in the foreign-born population in U.S. history—Cato captures the period when most immigrants were at an age that generated revenue, while largely omitting the future entitlement spending owed to a greying population. Today the United States has more than 50 million immigrants, and the average immigrant today is 46 years old. Thus, America has already reaped the majority of the economic benefits from existing immigrants. As the immigrant population continues to age, taxpayers will begin to feel the cost.

Perhaps the most glaring omission is Cato’s effort to obscure the differences among immigrants by educational attainment. My 2024 and 2025 estimates, consistent with other research, show that nearly all positive fiscal effects of immigration are generated by college-educated immigrants. Those without a bachelor’s degree are net fiscal burdens at the federal level because lower earnings translate into lower tax payments, while also making them eligible for means-tested transfers.

Source: Author’s analysis of direct federal tax and benefits, CPS 2025, using a discount rate equal to the 30-year treasury nominal rate and latest CBO baseline.

Finally, the Cato model counts “nontax revenues” as part of immigrants’ fiscal contribution. These include revenue from government assets and other miscellaneous receipts that are not taxes. In the study’s estimates, such revenues account for more than one third of the net payments attributed to low-skilled immigrants. Yet there is little reason to assume that low-income immigrants are generating thousands of dollars per person for government enterprises. No prior study makes this assumption, and doing so substantially inflates the estimated contribution of low-earning immigrants.

The result of Cato’s unrealistic assumptions is a conclusion that every additional resident—regardless of income or education—is a large fiscal asset in a country running persistent trillion-dollar deficits.

The truth is more nuanced yet straightforward: Immigration produces many economic benefits for Americans. But it also imposes costs. Those costs and benefits can be optimized by considering the age, legal status, and educational attainment of would-be immigrants. A responsible and economically prudent immigration policy should therefore emphasize selection based on employment and earnings potential—not simply assuming that opening our borders will solve our fiscal problems.

1. While this figure does not account for excise and corporate taxes, these are a small fraction of federal revenue—under 10 percent. It also excludes all public goods provided by the government such as transportation, subsidies, and public services, and it does not adjust for life-cycle changes or for the incarcerated population.

2. When the U.S. population grows, so does spending on highways and roads, policing, firefighters, and a variety of subsidies. Even spending on national defense rises. In fact, Cato’s own analysis shows that real per-capita military spending is higher today than in the 1970s. A partial accounting of this growth in public-good spending is important to understand the true fiscal effects of population growth. But Cato goes further than the National Academies and even excludes veterans’ benefits and many subsidy programs, despite the fact that immigrants both serve in the U.S. military and receive these benefits.